How Do DOL Rules Impact Insurance Producers? – InsuranceNewsNet

InsuranceNewsNet — Your Industry. One Source.™

Sign in
  • Subscribe
  • About
  • Advertise
  • Contact
Home Now reading Top Stories
Topics
    • Life Insurance News
    • Annuity News
    • Health/Employee Benefits
    • Property and Casualty
    • Advisor News
    • Washington Wire
    • Regulation News
    • Sponsored Articles
    • Monthly Focus
  • INN Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
Sign in or register to be an INNsider.
  • Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
  • Insider Pro
  • About
  • Advertise
  • Editorial Staff
  • Contact
  • Newsletters

Get Social

  • Facebook
  • Twitter
  • LinkedIn
From The Field Exclusive News
Top Stories RSS Get our newsletter
Order Prints
February 22, 2021 Top Stories No comments
Share
Share
Tweet
Email

How Do DOL Rules Impact Insurance Producers?

By H.L. Vogl

To the surprise of many, the Department of Labor allowed the previous administration’s final fiduciary advice regulation, officially titled Prohibited Transaction Exemption 2020-02, to go into effect on Feb. 16. The focus of PTE 2020-02 is on broker-dealers and registered investment advisors, but how does this turn of events impact insurance producers?

Does PTE 2020-02 Matter For Insurance Sales?

This new PTE, in itself, probably has little impact on annuity and certain life insurance sales. This is simply an additional way for persons who are categorized as “fiduciaries” under Section 4975 of the Tax Code to qualify to be paid a commission for selling products or services to qualified plan participants and individual retirement account owners. No one is required to use this particular new PTE instead of preexisting ones.

For decades, PTE 84-24 has covered insurance agents and brokers and their affiliates to allow the sale of life insurance and annuities to qualified plans. This option remains available, and the DOL has recently clarified that PTE 84-24 also covers sales to IRA owners and commissions paid to insurance intermediaries as well. For PTE 84-24 to “permit” the sale of an annuity or insurance policy with qualified funds, the participant or owner must sign a disclosure document authorizing the transaction. The PTE 84-24 disclosure must contain:

Related stories

  • How captive insurance can save high net worth clients’ hard-earned money
  • 3 ways to reduce employer health care costs in 2023
  1. The nature of any affiliation or relationship with the insurance company whose contract is being recommended, and any limitations on the products that can be recommended.
  2. The sales commission, expressed as a percentage of gross annual premium payments.
  3. A description of any charges, fees, discounts, penalties or adjustments under the contract.

The Preamble Is The Real Story

The preamble to PTE 2002-02 is where we find the important news. It provides commentary regarding how the DOL’s career staff think the regulatory definition of fiduciary investment advice — which dates back to 1975 — should be interpreted in the present retirement savings marketplace.

When the Fifth Circuit Court of Appeals vacated the Obama administration’s regulation redefining the term “fiduciary” in 2018, the DOL was required to revert to this five-part test for fiduciary investment advice: “(1) … make recommendations as to the advisability of investing in, purchasing or selling securities or other property (2) on a regular basis (3) pursuant to a mutual agreement, arrangement, or understanding with the plan, plan fiduciary or IRA owner, that (4) the advice will serve as a primary basis for investment decisions with respect to plan or IRA assets, and that (5) the advice will be individualized based on the particular needs of the plan or IRA.”

Back in 2005, the DOL issued Advisory Opinion 2005-23A (the “Deseret Letter”), which said that a recommendation to rollover is not advice to sell, withdraw, or transfer assets invested in a qualified plan. This meant that rollover recommendations were categorically excluded from the definition of fiduciary investment advice. Last summer, the DOL formally withdrew this advisory opinion, saying its earlier analysis was incorrect. Instead, financial professionals should look at rollover recommendations in the context of their entire relationship with the person receiving the advice when determining whether fiduciary duties apply to their recommendations.

The preamble provided useful clarification that “if a financial institution or investment professional does not want to assume a fiduciary relationship or create misimpressions about the nature of its undertaking, it can clearly disclose that fact to its customers up front, clearly disclaim any fiduciary relationship, and avoid holding itself out to its retirement investor customer as acting in a position of trust and confidence.” While it has not provided bright-line rules, the DOL has made it clear that disclaiming fiduciary status is permissible, as long as other communications and actions are consistent with that disclaimer.

To-Do List For Insurance Producers

When the Obama administration’s fiduciary regulations were being delayed and litigated, the DOL issued a temporary policy of not enforcing prohibited transaction rules against persons who were following the basic “impartial conduct standards” laid out in the (now-defunct) Best Interest Contract Exemption. These standards are simply good professional practices: acting prudently and in the best interest of the client, compensation being reasonable, and not making misrepresentations. The preamble announced that this temporary non-enforcement policy will come to an end on Dec. 20, 2021. This gives financial professionals most of this year to determine more specific plans for compliance going forward.

Financial professionals should consult with their compliance officers and/or legal advisors for specifics, but these are some key items to be addressing:

  • Sales of qualified variable and indexed annuities. When selling annuities in which the owners can make changes in their account allocations or other features, it is reasonable to expect that the clients will continue to look to their agents for additional advice after the initial sale. The safe assumption is that recommendations to rollover to these types of annuities are fiduciary advice, in which case complying with the requirements of an applicable PTE will be necessary. Issuing insurance companies are best positioned to produce standardized PTE 84-24 disclosures for their products. Check with the companies whose products you distribute to make sure they are planning to include these forms with their application packets soon, if they don’t already.

 

  • Sales of qualified “simple” fixed annuities: Fixed, non-indexed annuities may be recommended on a onetime basis, in which case they would fail the “regular basis” part of the five-part test and not be fiduciary investment advice. However, if they are sold in the context of a broader relationship of providing advice on retirement investments, these sales may be subject to the fiduciary rules. Professionals selling these products should consider whether it is more appropriate to prominently disclaim fiduciary status, or to use PTE 84-24 disclosures “prophylactically.” (Unlike PTE 2020-02, PTE 84-24 does not require anyone to represent themselves as a fiduciary.)

 

 

  • Sales of life insurance to qualified plans: IRAs cannot own life insurance, but some employer-sponsored plans can. Carriers issuing policies in this niche space may have already been providing PTE 84-24 disclosures in their application packets; make sure they are doing so going forward.

 

Whether called a “fiduciary” or “best interest” or “enhanced suitability” standard, various federal and state regulators are increasingly converging on certain best practices when it comes to making recommendations for financial products and services. This can enhance opportunities to demonstrate your valuable expertise to clients. However, it can be challenging to make sure specific documentation and disclosure requirements are followed when different rules apply to different transactions. Always consult with your compliance officer to get clarity about which requirements apply to your particular practice and situation.

H.L. Vogl, JD, CFP, serves as director, advanced sales, at Crump Life Insurance Services and serves on the company’s regulatory council. They may be contacted at [email protected].

© Entire contents copyright 2021 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

 

 

Older

Larry Kudlow To Join The Bahnsen Group Wealth Management Firm

Newer

Public Option Would Be Destabilizing, NAHU Exec Says At CapCon

Advisor News

  • Some major REITs limiting cash-out requests from investors
  • Four stages of retirement planning
  • Can you work while on Social Security?
  • Even on $100K-plus, more Americans are living paycheck-to-paycheck
  • Opinion: the state wealth-tax alliance
More Advisor News

Annuity News

  • Sweet streams of income: ChatGPT, the bard of annuities
  • F&G Annuities & Life announces equity investment in life IMO SYNCIS
  • Investors scrambling to lock in rates propel annuity sales to record highs
  • North American and Annexus launch new fixed index annuity
  • Producers stew as insurers slow to process life and annuity applications
More Annuity News

Health/Employee Benefits News

  • Medicaid coverage is expiring for millions of Americans – but there's a proven way to keep many of them insured
  • Health savings account balances increase in 2021
  • Outcome Health trial gets underway with prosecutors alleging former execs were involved in $1 billion fraud scheme
  • Bill incentivizing gun owners to secure firearms addresses public health concern
  • With CalPERS, add another to list of California's botched projects
More Health/Employee Benefits News

Life Insurance News

  • NAIFA’s Future Leaders Program offers free sessions for students
  • Scott Boutin named president of Standard Security Life
  • Agent insists Alex Murdaugh suggested he killed his son
  • 78% of families suffer financially handling estate affairs
  • National Life expands living benefits suite
Sponsor
More Life Insurance News
The time is 05:41:37am test

- Presented By -

Top Read Stories

  • Investors scrambling to lock in rates propel annuity sales to record highs
  • Chicago news roundup: PPP fraud uncovered in Chicago, informant reveals $100K bounty on FBG Duck and more
  • For some, nothing to fear from taking RMDs, professor says
  • North Carolina businessman pleads guilty in multi-million tax fraud case
  • Study: Education level should drive decisions on Social Security, annuities
More Top Read Stories >

FEATURED OFFERS

Meet Encova Life
We know agents matter. You can count on our life team to be high tech, high touch and responsive.

How to Write For InsuranceNewsNet

Find out how you can submit content for publishing on our website.
View Guidelines

Topics

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits
  • Property and Casualty
  • Advisor News
  • Washington Wire
  • Regulation News
  • Sponsored Articles
  • Monthly Focus

Top Sections

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits News
  • Property and Casualty News
  • AdvisorNews
  • Washington Wire
  • Insurance Webinars

Our Company

  • About
  • Editorial Staff
  • Magazine
  • Write for INN
  • Advertise
  • Contact

Sign up for our FREE e-Newsletter!

Get breaking news, exclusive stories, and money- making insights straight into your inbox.

select Newsletter Options
Facebook Linkedin Twitter
© 2023 InsuranceNewsNet.com, Inc. All rights reserved.
  • Terms & Conditions
  • Privacy Policy
  • AdvisorNews

Sign in with your Insider Pro Account

Not registered? Become an Insider Pro.